Four Remaining Defendants Plead Guilty In Manhattan Federal Court For Their Roles In Multimillion-Dollar Corporate Accounting Fraud
Preet Bharara, the United States Attorney for the Southern District of New York, announced today that LATCHMEE MAHATO, a/k/a “Robbie,” and JONATHAN WHEELER, two of the owners and principals of G3K Displays, Inc., and related entities (“G3K”) – a New Jersey-based company that provided in-store displays for retailers – ZACHARY KAITZ, an executive at G3K, and KATHLEEN SMITH, a former employee of Foot Locker, Inc., a major customer of G3K, pled guilty in Manhattan federal court for their roles in an elaborate scheme to defraud G3K’s lenders and customers out of millions of dollars. Among other things, MAHATO, WHEELER, and ZACHARY KAITZ admitted that they and others fraudulently inflated G3K’s sales and accounts receivable to secure millions of dollars in loans, and verified to G3K’s lenders and outside auditors false financial information about G3K. SMITH admitted to inflating purchase orders from Foot Locker to G3K and receiving kickbacks from MAHATO, SMITH, and co-defendant Steven Kaitz, the third owner and principal of G3K. MAHATO, WHEELER, SMITH, ZACHARY KAITZ, and Steven Kaitz were charged in January 2015. MAHATO and SMITH pled guilty yesterday, ZACHARY KAITZ pled guilty today, and WHEELER pled guilty on April 28, 2015, each before United States District Judge Jed S. Rakoff. Steven Kaitz pled guilty on April 22, 2015, before Judge Rakoff.
Manhattan U.S. Attorney Preet Bharara said: “With the guilty pleas of Latchmee Mahato, Jonathan Wheeler, Kathleen Smith, and Zachary Kaitz, all five of the defendants have now pled guilty in connection with this multimillion-dollar scheme that misled G3K’s customers, lenders, and auditors. I would like to thank our partners at the FBI for working with us on this case.”
According to the Indictment and statements made during the proceedings in this case:
Steven Kaitz, MAHATO, and WHEELER were the three owners and principals of G3K, a company that manufactured and designed displays for retailers around the world, including major retailers of sports apparel and footwear. ZACHARY KAITZ served as G3K’s Vice President of Creative Services.
From approximately 2012 to May 2014, in order to trick various lenders, including Veritas Financial Partners, LLC, and MVC Capital, into lending at least $18.6 million to G3K, Steven Kaitz, MAHATO, WHEELER and others engaged in a scheme to falsely inflate G3K’s revenue and accounts receivable, and as part of the scheme, made and caused to be made materially false and misleading statements about G3K’s financial condition. To create the false impression of sales, the defendants created phony documents, including fake and falsely inflated purchase orders purporting to reflect sales to G3K’s customers. Steven Kaitz, MAHATO, WHEELER, and SMITH also tricked certain of the company’s customers, including Foot Locker into paying falsely inflated invoices from G3K.
The defendants took elaborate steps to keep the scheme afloat and prevent G3K’s lenders and outside auditors from discovering the fraud. For example, Steven Kaitz, MAHATO, and WHEELER were involved in the creation of fake email accounts purporting to belong to fictitious employees of Foot Locker and Adidas, G3K’s two largest customers. Steven Kaitz, MAHATO, and WHEELER operated these fake email accounts themselves, pretending to be employees of those customers, and then used those fake email accounts to “verify” false information about G3K’s financial condition, including its sales and accounts receivable, to G3K’s lenders and outside auditors. To keep their scheme afloat, Steven Kaitz, MAHATO, and WHEELER also utilized shell companies to engage in “round-trip” transactions to create the false appearance that customers were paying G3K’s phony outstanding receivables. ZACHARY KAITZ, who was skilled in graphic design, helped carry out the fraud by creating fraudulent documentation, such as fake invoices, purchase orders, and bills of lading, to support the false representations to the lenders about G3K’s business.
Steven Kaitz, MAHATO, and WHEELER further misappropriated approximately $2.8 million of the loan proceeds for their own personal use, to pay for homes and luxury cars, private school tuition, and personal credit card bills, as well as kickbacks to SMITH.
As of May 2014, when G3K’s lenders terminated their lending relationships with the company after discovering the fraud, G3K had approximately $18.6 million in loans outstanding.
LATCHMEE MAHATO, a/k/a “Robbie,” 49, of Jamaica, Queens, JONATHAN WHEELER, 46, of Southport, Connecticut, and ZACHARY KAITZ, 31, of Brooklyn, New York, each pled guilty to one count of conspiracy to commit bank fraud and wire fraud, which carries a maximum sentence of 30 years in prison. As part of their respective plea agreements, MAHATO and WHEELER each agreed to pay restitution in the amount of $18,600,000, MAHATO agreed to forfeit $2,215,147, WHEELER agreed to forfeit $957,435, and ZACHARY KAITZ agreed to forfeit $100,000. KATHLEEN SMITH, 49, of South Plainfield, New Jersey, pled guilty to one count of conspiracy to commit honest services wire fraud, which carries a maximum sentence of 20 years. As part of her plea agreement, SMITH agreed to pay restitution in the amount of $348,500 and to forfeit $244,407. MAHATO, WHEELER, SMITH, and ZACHARY KAITZ are each scheduled to be sentenced by Judge Rakoff on September 9, 2015.
Steven Kaitz pled guilty on April 22, 2015, before Judge Rakoff, and he is scheduled to be sentenced on September 8, 2015.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation.
The case is being prosecuted by the Office’s Complex Frauds & Cybercrime Unit. Assistant U.S. Attorneys Joshua A. Naftalis and Rosemary Nidiry are in charge of the prosecution. Assistant U.S. Attorney Edward B. Diskant of the Money Laundering & Asset Forfeiture Unit is responsible for the forfeiture aspects of the prosecution.